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V. Material Benefits of Microfinancing

Guest post by: United Nations Economic Commission for Africa

Article Overview: Microfinance initiatives can play an effective role in addressing material poverty, the physical deprivation of goods, services, and the income to attain them. MFIs can help people become more economically secure. This, in turn, has a multiplier effect on people's standard of living, enhancing basic household welfare, such as food security, nutrition, shelter, sanitation, health and education services. MFIs can help prevent and extricate people from debt. Oftentimes, they liberate low-income households from moneylenders with outrageous interest rates that often reach 100% annually. Savings and credit services help people start or improve their own small businesses, providing income generation and employment for themselves and their families.

V. Material Benefits of Microfinancing

Microfinance initiatives can play an effective role in addressing material poverty, the
physical deprivation of goods, services, and the income to attain them. MFIs can help people
become more economically secure. This, in turn, has a multiplier effect on people's standard of
living, enhancing basic household welfare, such as food security, nutrition, shelter, sanitation,
health and education services. MFIs can help prevent and extricate people from debt.
Oftentimes, they liberate low-income households from moneylenders with outrageous interest
rates that often reach 100% annually. Savings and credit services help people start or improve
their own small businesses, providing income generation and employment for themselves and
their families.

Credit can be used as working capital so that clients' efforts become more productive; for
example, clients can buy rice or grains in bulk at wholesale prices and resell it at retail prices or
buy a refrigerator to keep produce fresh. As clients become more productive, their income
increases and they are able to accumulate savings for other investments and emergencies.
Savings serve as reserves for important household expenditures (such as school fees and funeral
costs), and as insurance against sudden crises (such as illness, natural disaster, or theft) that can
otherwise result in destitution for people already living at the poverty line. In many cases lowincome
people want to save, and have been saving in a variety of traditional ways, ranging from
kinship networks to Revolving Savings and Credit Associations (ROSCAs), but lack appropriate
saving facilities that offer a combination of security of funds, liquidity, positive real return, and
convenience. MFIs can build upon Africa's traditional savings ethic to enhance outreach and
quality of services. It is important to keep in mind that for any financial service to have a lasting
impact on poverty eradication, it must be flexible and innovative to adapt to their needs of its
clients.

Microfinance in Africa: Combining the Best
Practices of Traditional and Modern
Microfinance Approaches towards
Poverty Eradication

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Article Tags: credit associations, destitution, education services, example clients, food security, household expenditures, household welfare, income generation, income households, income increases, kinship networks, material poverty, microfinance initiatives, moneylenders, multiplier effect, natural disaster, outrageous interest rates, poverty eradication, poverty line, wholesale prices



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